Role of gold in absence of inflation

[l82start]

i don't think that that is an accurate description in any way, PP investors are as a group a bunch of people as far from mindless lemmings and followers as any i have ever seen, nor are they the types who need a director or engineer to guide them.. from all i have seen of PP investors they tend to be the polar opposite  - Do It Yourself- enthusiasts who constantly question and challenge their own understanding of the investment world, the portfolio they hold, and their personal psychology regarding risk..

and unless there is now a fifth or sixth economic condition, or the world has changed and "we are unable to predict the future except for the future of gold" (unlike back in harry browns time when the future was all unknown), or money you want to preserve is now better off placed somewhere riskier to save it from disaster??  then the portfolio seems to be operating as expected*

*(for those with realistic expectations based on how the PP is advertised to work)

[mathjak107]

With history as a guide , which pp'rs are big on ,if you call gold ,insurance and not an investment , it seems silly looking at the last 40 years ,to pay as much to buy an asset like ownership in the 500 largest company's as you would to buy insurance to protect those assets.

That to me is the flaw and anyone following the stratagey does just that with no one at the top saying hey guys i think we have to tone down the insurance coverage.

Sure you can do it on your own , but then you are breaking the plan as
written.

But then because it has not been an official change there are those here will tell you that you are not investing your speculating as you  decide
what to do based on your own citeria.

Many do exactly that , they mold the pp to better fit the job as they see it based on how things have actually played out for them.

Perhaps they are just doing what harry would have done had he been able to see things today.

[Cortopassi]

Everything anyone does with money is speculating.

I speculated that it would be better for me to plow all my extra income years ago into paying off our house vs. investing it in the market.  For me, great idea!  For you, maybe not so much because you thought you could get a better return in the market.

I speculated that Dodge and Cox Stock Fund, with such stellar history, would be the best place to park my money.  Until 2008, I was right.  Then I found out the hard way they were seriously overloaded in financials.

I am currently speculating that the PP will better weather the storms off the horizon.

If I ran into the Dalio All Weather portfolio, or some other 4 season portfolio vs., the PP, it is quite possible I would be in one of those.  Anything along those lines was better than I was doing.

Virtually all stock analysts in the "mainstream" will only ever recommend a stock heavy portfolio.  How many times have you ever heard one recommend gold vs. pooh-poohing it?  Or recommend to actually sell stocks, vs. buy the dip?  It almost never happens and is completely biased toward buying.

It is self fulfilling, most analyst recommendations are buy or accumulate, and pension plans, 401ks, etc do and it works until there is a correction, and the more married you are to one type of speculation, the less ability you have to rebalance into other forms, and get burned more badly.

I choose to speculate with the PP because it makes sense to me given my temperament. 

[goodasgold]

With history as a guide , which pp'rs are big on ,if you call gold ,insurance and not an investment , it seems silly looking at the last 40 years ,to pay as much to buy an asset like ownership in the 500 largest company's as you would to buy insurance to protect those assets.

MJ, Harry Browne based the PP on the fundamental premise that the future is unknowable.

In contrast, your quick-change investment strategies are based on the claim that you do know the future. It is a free universe, and you have the right to put on your turban while contending for the Joe Granville Prize as the world's Number One crystal ball gazer.

Good luck with your market Ouija board. But as for me, I'm sticking with the PP. 

P.S. Mark my words: gold will be back. When it will come back, and how long it will be back before it dives again, I don't have a clue. In the meantime, in good times and bad, I will place my trust in gold and the other three PP assets as long-term diversifiers, rebalancing as market conditions change, rolling with the punches all the way to the bank. Yes, there will be occasional down years, but as a PP investor I am thinking long-term, as always. 

[Pointedstick]

What this thread--and many recent others--says to me is that the PP's weakness is not with the portfolio but rather with us.

Mathjak is not big on gold, and he has a million reasons in his pocket for why it's a bad idea to put a bunch of money into it. So any portfolio that includes a lot of it will make him nervous. For Libertarian666, the worrisome assets are stocks and government bonds. And so on.

The psychological profile of the ideal PP investor, I think, is someone who likes stocks, long treasuries, and gold equally, or at least equally enough so that they won't panic and give into their distaste for their least favorite asset precisely when it begins to falter. You'll notice that the people who are most unhappy with the PP are dominated by worry over one particular asset during a time when it's down. You need to have confidence that the currently out-of-favor assets will eventually rise again. Without that, you'll just feel like a dummy for buying it in the first place and will be tempted to sell low.

It makes sense to me that if you like the general framework behind the PP, but you really dislike one of the assets, you should implement a PP but just underweight that asset. That way you still pretty much have a PP but the asset you hate won't make you so sick to your stomach or tempt you to make bad decisions.

[barrett]

It makes sense to me that if you like the general framework behind the PP, but you really dislike one of the assets, you should implement a PP but just underweight that asset. That way you still pretty much have a PP but the asset you hate won't make you so sick to your stomach or tempt you to make bad decisions.

Not only that, but a lot of the rebalancing away from our least favorite asset happens naturally. For example, a lot of people wishing they were underweight in gold probably already are inasmuch as both stocks and bonds have outperformed gold over the last couple of years. It's rare to hate an asset that has been doing well, and if gold were sitting at $2200 an ounce, there would be little bellyaching.

I have mixed feelings about mathjak hammering away non-stop at the PP. On one hand I think it's good to have another perspective. But his incessant anti-PP posts on this forum would be a bit like me posting non-stop on the MMM forum that those damn optimists need to get a dose of reality and lighten up on stocks.

There was that great PP discussion on the Bogleheads forum but it was limited to one thread (with an eventual sequel). It didn't dominate the whole dang forum.

[barrett]

I think a lot of that bubble was due to gold becoming easily buyable in the form of ETFs.  I bet a lot of mainstream sell-side brokers started pushing gold and stories about gold, and it went crazy.  Now it's just another speculative vehicle available to anyone with a brokerage account.  Prior to this you had to really be into it to be long gold.  I think it will behave more like other commodities going forward.  Just my guess!

Shrugged, Are you suggesting there could be a flight to soybean futures when the going gets rough? 

You are probably right to a certain extent about the gold ETFs. I just see the gold market as still really small even with the ETFs. But, yes, it's certainly easier to buy or sell if you can do it with a click of a mouse.

[mathjak107]

If you notice the subject lines are questions . They are looking for opinions or facts on somthing pertaining to the pp.

While some of you know my feelings and objections all to well , many do not .

It is for them i try to give them food for thought so they have views from both sides of the fence.

Hanging out with and patting each other on the back for making the choice will not give anyone a well rounded view to make a decsion.

Sure , you have lots of folks here with war story's about their old investing method using conventional portfolios. But the fact is if you lost money in 2008-2009 in diversified funds you can' t blame markets . You can only blame poor investor behavior.

There is no guarantee even if the pp stays downfor a while they will  stick with it.

[sophie]

The primary sources (Browne's books and podcasts) talk about how the gold bullion allocation is an all-else-fails backup in case your local economy stops working for you. Hyperinflation is one failure mode, but there are others.

As a thought experiment, put yourself in the position of a Syrian refugee. Conditions in your home country are so horrendous that you're willing to run away to any country that will take you, bringing only what you can carry. If your portfolio is all paper assets, you are now flat broke. If you have an orthodox PP, you can carry 1/4 your net worth on your person. At least you have something, enough to start over.

More subtly, when you feel secure about being protected against doomsday scenarios, you are inoculated against wasting money due to worry about doomsday scenarios. When a perma-bear or prepper is chewing your ear off about how the US will collapse any day now, you can safely tell yourself "well worst-case scenario I'll still have the gold and land on my feet." Which blocks you from making a rash decision. So the gold protects you against losses without actually doing anything.

Further, humans seem to have an urge to hoard tangible valuables. When you invest in the PP, you can blow off that steam buying gold bullion coins, which are at least part of a coherent portfolio and are liquid. Without that blow-off, people tend to waste money on negative-return, illiquid collectibles. My grandfather bequeathed me baseball cards and stamps. My grandmother-in-law has been trying to sell expensive collector plates for years. I really wish these guys had bought bullion instead.

Can I all call your attention to KevinW's wonderful post.  I agree completely that gold has a far greater role in the PP than its expected market return.

Agree with Barrett also.  The PP is rather unconventional, and furthermore it was designed as a complete asset management system, rather than simply as an investment scheme.  HB considered CAGR, certainly, but protection and safety in both the near and long term were paramount.  That's a very attractive feature for me (and for others here I expect).

[sophie]

Being a physician definitely makes me more aware of these benefits than most.  We live in a downright scary environment; there are so many reasons now why MDs might find themselves out of a job and destitute.  Lawsuits for sure, but the 2009 HIPAA modification could do you in just as easily.

And don't think any of you are immune:  per this HIPAA law, you could be arrested/fined/fired/etc for looking at your own medical record.  I'll bet you didn't know that.

[I Shrugged]

Kevin and Sophie, I feel about the same way about gold.  It's more than insurance.  It's a store of wealth; time tested, private, portable. That said, as an "investment", I don't expect it to do any better than match inflation in the long run.

[KevinW]

Thanks guys.

I think sometimes critics of the PP fail to understand that, unlike most other investment strategies, the PP tries to work on both a mathematical financial engineering level, and also a psychological level. An optimized allocation is one thing, but a regimen that imperfect human beings will actually follow through on, is another. The physical gold and uniform 4x25 allocation, are examples of this. They might not be mathematically optimal on paper, but behaviorally they work better than many alternatives.

Kind of like how, if you ask a biologist how to lose weight, they'll say "make sure you burn more calories than you consume," full stop. It's a correct response, but not really adequate as advice. Most humans need some structure and encouragement to follow through on that and succeed.

[Kbg]

Interesting fact spx and gold futures are down exactly 4.07% YTD.